Mumbai: Up to 80% of Indians now have a bank account, the same proportion that have a mobile phone, but financial inclusion levels are still among the world’s worst, lower than sub-Saharan Africa on some counts, according to a new report.

Despite the availability of mobile-banking services and the narrowing of gender, wealth and education gaps in account ownership, few account holders are using facilities available to them, raising doubts around improvements for financial inclusion, according to the latest Global Findex Survey released by the World Bank in April 2018.

India’s unbanked population has been the target of the government’s flagship Pradhan Mantri Jan Dhan Yojana (PMJDY), or the Prime Minister’s People’s Wealth Programme, launched in 2014. It has been largely responsible for the rapid increase in opened accounts, the Global Findex report said.

No more than 1% of PMJDY account holders--3.1 million beneficiaries--use overdraft facilities available to them, and 17% of PMJDY accounts are “zero-balance”, meaning they are not used, recent data show, although that is down from 25% in 2016 and 75% in 2014.

There is no marked improvement in access to formal credit, and 38% of Indian accounts are inactive--meaning, there were no withdrawals or deposits over the course of a year--suggesting that many Indians are still not integrated into the formal banking system.

Participation in and effective use of financial services can help drive development goals by aiding investment in education and health, helping to manage financial emergencies and reduce dependency on cash, the report said.

India not yet benefitting from mobile banking

The proportion of the Indian population accessing financial institution accounts from their phones or the Internet, making digital payments or using mobile money wallets is significantly lower than in other developing economies.

In 2017, 5% of Indians accessed a financial institution account from their phone or the Internet, and 2% of the population owned a mobile money account, the Global Findex data show.

Compare this to sub-Saharan Africa, where 21% of adults had a mobile money account in 2017, the highest anywhere in the world and a 50% increase since 2014. Digital payments are also more widespread, with 97% of adults in Kenya making a digital payment in 2017 and 60% in South Africa, compared to 29% in India.

Adults in these countries are moving towards financial inclusion, bypassing traditional entry points and capitalising on the growth of digital finance. The same cannot be said about India.

Despite addressing problems around access to physical bank branches and the need to present specific documentation, often cited as barriers to financial inclusion, the majority of Indians are not yet experiencing the benefits of mobile banking. “Generally people are still not entirely comfortable with using their phones for banking,” said Nishanth K., senior research associate at Dvara Research, a financial systems policy research institution. “There is a fundamental mis-trust in using phones or digital modes to transact, particularly in rural areas.” Digital India, a government initiative launched in 2015 to improve internet connectivity, digital literacy and the nation’s technology infrastructure, aims to increase participation in the digital economy. Through mobile banking platforms, cashless government benefit transfers and also increased awareness of these services, it believes financial inclusion can be improved.

However, poor access to electricity and internet penetration hinders connectivity in India, and may be a contributing factor to slow adoption of mobile banking.

Internet penetration currently faces a rural-urban divide. In December 2017, 65% of urban households had an internet connection compared to 20% in rural india, according to a 2017 report released by the Internet and Mobile Association of India.

The Bharat Net Programme, a government scheme committed to spending $5.07 billion (Rs 34,000 crore) to provide high-speed internet in 150,000 villages by 2019, must double its efforts in the next year in order to reach its target. Currently 67,271 villages have been connected, Your Story reported in March 2018.

Equally, while mobile phone ownership is increasing, many rural inhabitants still struggle to access electricity for simple daily tasks--such as charging a phone.

As many as 31 million households currently do not have electricity, despite the 99.8% village electrification claims made by the Rural Electrification Corporation Ltd (REC)--the agency appointed to execute the Deen Dayal Upadhyaya Grameen Jyoti Yojana or ‘Power For All’ programme.

Using apps and online banking websites requires a level of technical literacy and confidence that Indians in rural and low-income areas often do not possess.

An education gap persists regarding mobile account access and digital payments. For example, 2% of those with a primary education or less have used a mobile phone or the internet to access an account in 2017, compared to 9% of those with a secondary education or less, the Global Findex data show.

Nishanth K. believes India cannot rely on technology alone to help reduce the numbers excluded from formal banking services.

“Access isn’t necessarily synonymous with the use of financial services,” he said. “While Global Findex data suggest access to financial services might be high, consumers may decide not to use them--either voluntarily or because opportunity costs are too high. While there is clearly a need for insurance and pensions, we are still yet to see viable products for low-income rural households.”

Financial literacy and the gender gap

Female bank-account ownership increased by 79% between 2014 and 2017. The gender gap, the difference between male and female account ownership, also narrowed to 6 percentage points, down from a 20-percentage-point gap three years ago.

These figures, along with a narrowing of wealth and education gaps by 10 percentage points each, suggest traditional socio-economic and gender barriers are no longer factors which impact upon successful access to financial services.

However while female account ownership has increased significantly to include 77% of all women in India, female participation in financial services and financial literacy has not yet reached similar levels.

No more than 22% of women owned a debit card in 2017, compared to 43% of men, according to Global Findex data. Similarly, 35% of men said they had made or received a digital payment in 2017 compared to 22% of women.

Low levels of engagement with the formal banking sector beyond simple withdrawals and deposits by women and marginalised sections of society suggest that universal account ownership does not necessarily equate to financial inclusion or the ability to use banking services effectively.

In 2015-16, 53% of women used a bank account in their own name, according to the fourth National Family Health Survey data.

Financial literacy is defined by the OECD, an intergovernmental economic organisation, as “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions”.

For rural women in particular, barriers to financial literacy such as a lack of higher education and male-dominated social structures still remain.

Knowledge of core banking services, online banking and banks’ credit facilities had the lowest levels of understanding, according to this 2017 study of rural women in Tamil Nadu. The women surveyed understood better the different bank account types available and the interest they offer; most were likely to invest in gold than any other saving or investment product due to a lack of understanding of these commercial services.

“One interesting solution to improve female participation is to have more women as banking agents working in rural areas,” said Nishanth K.

“Currently, 8% of banking agents are women and three quarters work in rural areas; this perhaps indicates that they are better able to reduce the gender imbalance around participation in financial services," said Nishanth K., quoting this May 2018 study by MicroSave, a financial inclusion consulting firm.

Access to and the ability to use financial services can empower women through managing financial risk and increase savings for education and healthcare spend.

However, account ownership alone does not equal financial inclusion, and the lives of previously ‘unbanked’ women have not necessarily improved as a result of owning an account.

While data show account ownership increased by 79% since 2014, female empowerment indicators, such as domestic abuse levels or access to reproductive health, have not improved at the same time.

Several indicators have shown a decline, suggesting levels of women’s empowerment have not improved. Only 53.5% women in the reproductive age-group used modern methods of contraception in 2015-16, a decline from 56.3% in 2005-06, according to data from the National Family Health Survey, 2015-16, IndiaSpend reported in January 2018. In 2015-16, 28.8% of married women faced spousal violence; in rural areas the figure is 31.1%.

(Sanghera, a graduate of King’s College London, is an intern with IndiaSpend.)

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